UniFirst Corporation Aktie

Good day, and thank you for standing by. Welcome to the Q1 2026 UniFirst Earnings Conference Call. [Operator Instructions] please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Shane O'Connor, Executive Vice President and Chief Financial Officer. Please go ahead.

Good morning, everyone, and thank you for joining us. With me today is Steven Sintros, President and Chief Executive Officer. We will review our first quarter results for fiscal year 2026, but first, a brief disclaimer. This conference call may contain forward-looking statements that reflect the company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties. The words anticipate, optimistic, believe, estimate, expect, intend and similar expressions that indicate future events and trends identify forward-looking statements. .

Actual future results may differ materially from those anticipated, depending upon a variety of risk factors. For more information, please refer to the discussion of these risk factors in our most recent Form 10-K and 10-Q filings with the Securities and Exchange Commission.

And with that, I will turn the call over to Steve.

Thank you, Shane, and good morning, everyone. Our first quarter results were largely in line with expectations, our expectations and our outlook for the full year remains unchanged. Revenues increased to $621.3 million, up 2.7% from the prior year period. Consistent with our guidance, operating income and adjusted EBITDA declined year-over-year reflecting the impact of planned investments designed to accelerate growth and improve operating leverage as well as higher-than-anticipated health care claims and legal costs during the quarter. .

As we discussed in our last call, we've been making investments in our sales and services organizations to build a stronger, more sustainable platform for accelerated growth. In addition to making targeted additions to our sales team during the second half of fiscal '25, we invested in strengthening our service teams, expanding both capacity and stability. These enhancements position us to drive improved performance across all key aspects of our growth model and are beginning to show up in our operating metric improvements like account retention, new account sales and additional product placements with our existing customers.

In addition to driving top line growth and the resulting benefits to our drop-through margins, we continue to invest in and execute in several initiatives that we believe will meaningfully enhance our profitability over time. As we previously discussed, these priorities include Operational excellence, driven by the continued adoption of the UniFirst Way, our enterprise-wide operating framework focused on scalable, repeatable processes to enable consistent execution, operational efficiency and continuous improvement.

Enhanced inventory management, procurement and sourcing driven by our ongoing ERP implementation, which is improving inventory sharing, centralizing procurement and expanding our global sourcing base and enabling enhanced supply chain execution. And G&A productivity driven by our broader digital transformation, which is designed to enhance scalability, cost discipline and operating leverage. Turning to our segments. Our core uniform Facility Service Solutions business delivered solid organic growth 2.4%, with positive performance across both sales and service operations.

New customer wins exceeded those in the same period last year and customer retention continued its positive trajectory, logging a second year in a row of quarter-over-quarter improvement. We also grew facility service product placements within our customer base, underscoring the breadth of our offerings the durability of our customer relationships and the long-term cross-selling opportunities embedded in our platform.

In our First Aid Safety Solutions segment, we continued our momentum with robust revenue growth of 15.3%, primarily reflecting the investments we have made in our First Aid van business, including some small bolt-on acquisitions. Although growth in the quarter was somewhat tempered by a softer employment climate affecting both rental and direct sale accounts, we remain confident that our ongoing investments are yielding measurable improvements in the key areas of our growth model.

Our balance sheet and overall financial position remain robust. We maintained our disciplined approach to capital allocation focused on investing in growth and returning capital to our shareholders. Underscoring the Board and management team's confidence in our strategy, execution and long-term growth prospects, we repurchased approximately $32 million of common stock during the quarter and over $77 million in the past 2 quarters. and again, increase the common stock dividend.

As always, I want to thank our team partners who continue to always deliver for each other and our customers. Every day, our team partners live our mission of serving the people who do the hard work. The people and workforce who keep our communities up and running by providing the exceptional products, services and support experience that enable them to do their job successfully and safely. Through our always delivered philosophy, we remain committed to creating value for all stakeholders, including our employees, customers, the communities we serve and shareholders.

On that note, I want to briefly address the unsolicited nonbinding proposal we received from Cintas recently. As we stated in our December '22 press release, the UniFirst Board of Directors has engaged independent financial and legal advisers to evaluate the proposal and determine the course of action that it believes is in the best interest of UniFirst, our shareholders and our other stakeholders. That work remains ongoing, and we will provide an update as soon as it has been completed.

I also want to acknowledge the active dialogue our management team and Board have had in recent weeks with many of our shareholders. We look forward to further constructive engagement to advance our common goal of enhancing shareholder value.

With that, I'll turn the call over to Shane, who will provide more details on our first quarter results as well as our outlook for the remainder of the year.

Thanks, Steve. Consolidated revenues in our first quarter of 2026 were $621.3 million compared to $604.9 million a year ago and consolidated operating income was $45.3 million compared to $55.5 million. Net income for the quarter decreased to $34.4 million or $1.89 per diluted share from $43.1 million or $2.31 per diluted share. Consolidated adjusted EBITDA was $82.8 million compared to $94 million in the prior year. .

Our effective tax rate increased to 26.9% compared to 25.6% in the prior year primarily due to the timing and amount of excess tax benefits and deficiencies related to employee share-based payments. Although we had a higher tax rate in the first quarter, we still believe that our tax rate for the full year will be approximately 26%. Our financial results in the first quarter as fiscal 2026 and 2025 included approximately $2.3 million and $2.5 million, respectively, and costs directly attributable to our ongoing ERP project or key initiatives.

During the first quarter of fiscal 2026 and 2025, these costs decreased operating income and adjusted EBITDA by $2.3 million and $2.5 million, respectively. Net income by $1.7 million and $1.8 million, respectively, and diluted EPS by $0.09 for both periods. The revenues in our Uniform and Facility Service Solutions segment increased to $565.9 million during the quarter compared to $552.8 million in the first quarter of 2025. Segment's organic growth, which adjusts for the estimated effect of acquisitions as well as fluctuations in the Canadian dollar, was 2.4%, driven by strong new account sales and improved customer retention.

Uniform and Facility Service Solutions operating margin was 7.4% for the quarter were $41.8 million, compared to 8.8% in the previous year were $48.5 million, and the segment's adjusted EBITDA margin was 13.6% compared to 15.4% in the previous year. The costs we incurred related to our key initiatives were recorded to this segment and decreased both the uniform and facility service solutions operating and adjusted EBITDA margins by 0.4% and 0.5% and in the first quarters of fiscal 2026 and 2025, respectively.

Segment's operating and adjusted EBITDA margin comparisons reflect the planned investments in accelerating growth and improving operating leverage as well as the increased health care claims expense and legal costs during the quarter that Steve discussed. Energy costs in the first quarter of 2026 were 4.1% of revenues. Our First Aid and Safety Solutions revenues increased by 15.3% to $30.2 million from $26.2 million in prior year. driven by double-digit growth in our van operations. Segment had a nominal operating loss of $0.4 million during the quarter, reflecting the investments we made to drive continued growth and improved profitability in the First Aid and Safety Solutions van business.

Revenues from our Other segment, which consists of our specialized nuclear decontamination services decreased 2.9% and to $25.2 million from $25.9 million in prior year, reflecting the anticipated start of a large refurbishment project wind down and fewer reactor outages. Segment's operating margin for the quarter was 15.4%, down from prior year due to the high fixed cost nature of the business.

As we mentioned in the past, the segment's results can vary significantly from period to period due to seasonality as well as the timing and profitability of nuclear reactor outages and projects. At the end of our first fiscal quarter, we maintained a solid balance sheet and financial position with cash, cash equivalents and short-term investments totaling $129.5 million and no long-term debt. The first 3 months of fiscal 2026, our free cash flows were impacted by lower profitability and heavy working capital needs of the business, including merchandise and service primarily related to the installation of a couple of large national account customers as well as the timing of income tax payments and vendor payments.

We continue to invest in our future with capital expenditures of $38.9 million, repurchased $31.7 million worth of common stock and acquired [indiscernible] businesses for $14.9 million. As Steve mentioned, we are reaffirming our full year fiscal 2026 guidance with a consolidated revenue range of $2.475 billion to $2.495 billion and fully diluted earnings per share between $6.58 and $6.98.

This guidance continues to include an estimated $7 million of costs directly attributable to our key initiative that we anticipate will be expensed in fiscal 2026. As a reminder, our guidance does not assume future share buybacks. This concludes our prepared remarks, and we would now be happy to answer your questions. Given Steve's update on the Cintas matter, we do not intend to be answering any additional questions regarding that situation. and ask that you please focus your questions on our first quarter results and 2026 outlook. Thank you.

[Operator Instructions] Our first question will be coming from Manav Henick of Barclays.

This is Ron Kennedy on for Manav. Steve, may I ask you if you could please remind us of the time line for achieving the long-term objectives of the mid-single-digit organic and high teens adjusted EBITDA margins. And then specifically, any significant milestones we should be mindful of through fiscal '26 and '27. And lastly, what gives you confidence in successful execution.

Yes. Good question, Ronan. As you mentioned, we had talked about those ones over the last couple of years. We have not given specific fiscal years for the achievement of those particular milestones, but when you look out over the next couple of years, our guidance for '26 is our guidance for '26. We expect to see steady improvement as we go through '27 and '28, getting closer to those mid-single-digit numbers. .

I would say, by the third year or so. When you look at the profitability side, again, this year, our guidance is our guidance. We have a lot inflecting in the next 18 to 24 months with the execution of our key initiatives and the completion of some of our tech projects. There are some large scale profitability benefits that we're going to enable over the next year or so. And again, we're not kind of giving guidance for '27 or '28 right now. But we believe that as we get through '27, you'll start to hit some of that inflection.

Now one of the things that at least over the course of this year into next year, we have to keep an eye on is the impact of tariffs on our cost structure and so on. But we do feel like as you get to a year from now, you're going to start to have better line of sight to the inflection of some of those large-scale initiatives that will be starting to come into our results. We have a lot of confidence in the plan we've put forth. We think there's a lot of real benefits to be yielded. And it's really a matter of time in executing these tech transformations and getting to the finish line.

That's helpful. And then if not mistaken, I think fiscal 4Q '25 was the highest quarter in new account installation, that momentum appears to have been sustained. Can you talk about those strategic investments in growth and the new customer acquisitions, but also the investments that you're making in the sales force, the service organization and any initial impacts from the UniFirst Way initiatives through the COO.

Yes, sounds good. I mean starting with the sales organization, we talked a lot in the fourth quarter about the, call it, restructuring of the sales organization, adding different roles into the sales organization to ensure that we have the right level of sales representative and free of the right prospects. So it's more of a tiered sales organization than it's been in the past. There was some strategic head count increases that were made primarily in the back half of that year, back half of last year, and we're starting to see good progress on the sales rep productivity and the yield from those additional resources in that restructuring.

From a service perspective, again, kind of reiterating what we talked about in our fourth quarter earnings call, a number of strategic head count additions to help bolster account management, account retention, adding some breadth and capacity to our service organization because when you think about our growth model, new account sales is obviously a key part of that. When you look at the other key components of our growth formula, whether it be retention, strategic upsell into our customer base as well as the management of price across our customer base.

Our service organization has a large responsibility into executing those 3 other pillars of growth. So adding some of those strategic resources is starting to get us ahead in a number of those areas I talked about in the quarter, how we're starting to see some momentum in customer upsell as well as some sequential or continued improvement, I should say, in new account for existing account retention. So it's really a number of those things in the service organization coming together to drive the growth model.

And that does filter into the service -- the operations execution with the UniFirst way. When we talk about renewing accounts and the discipline around ensuring that we're managing our account renewal process, just as an example, in a very disciplined, organized way. We've talked over the course of last year, how our metrics around accounts renewed continued to sequentially improve, and it's not a surprise that that's yielding improved overall customer retention. So that's 1 example I can give of our overall operational execution discipline yielding benefits in our growth model through our service organization investments.

I know you asked a lot of pieces to that question. Feel free to follow up if I didn't answer what you've asked.

Our next question -- we'll be coming from Tim Mulrooney of William Blair.

Just thinking on the higher new account growth conversation. I think you characterized that in your prepared remarks, even as strong new account sales. So I was hoping you could unpack that a bit for -- more for me. Curious if the accounts -- the new accounts that you're winning, which I think you said was higher year-over-year which was good to hear. -- Does that broadly match your customer mix? Or are you noticing, I don't know, a higher number of new accounts from any particular industry or client type?

Yes. I talked about it less in terms of industry and probably more in terms of customer size. When I talk about some of the structural changes we've made in our sales organization to more of a tiered model, we had previously talked about sales in the context of national accounts or local accounts. Well, there's a large Unifirst of accounts that fall in between the, say, $80 a week account and the true national accounts, and we're really making more progress over time in those midsized accounts.

And that was really part of that investment in this tiered selling organization where we have sales reps focused on that tier of customer as opposed to just the 2 ends of the spectrum. So that's been an evolution over the last couple of years, and that's something we're going to continue because we think we can yield a lot better success in that midsized customer demographic, and we're starting to see the success there.

And you had strong new account growth, but you did mention in your prepared remarks, growth somewhat tempered by softer employment climate, which, I guess, affected your rental customer accounts, you've highlighted net wearer levels as being a slight headwind the last couple of quarters. But -- has that gotten progressively more difficult the last couple of months, we all can see the job numbers. And look, if you've got if you've got good strong new account growth, but your organic growth is low single digit, that implies that something is offsetting that, right? So I assume that's the net wearer levels, can you set me straight on that and talk about if that's gotten progressively more of a headwind recently.

Yes. Probably the way I'd categorize it, it has gotten incrementally more impactful. And look, we are on a journey to building towards stronger growth, right? So when we talk about stronger new account sales, better retention. We still have progress to make in those areas. And the one in particular is that existing count penetration. So that is sort of the universe that encompasses the employment situation, but also the work that we do to continue to add product placements to our customers.

So yes, there was some incremental weakness in that area. And some of that was offset by some progress that we have made in product placements, but I think that continues to be the biggest opportunity over the next couple of years, combined with continuing our journey on improved retention to drive toward that mid-single-digit sustainable growth.

Our next question will be coming from Josh Chan of UBS.

I was wondering about your unchanged revenue guidance because it sounds like you have decent momentum in the business. It sounds like you're installing some national accounts customers in the quarter, you made a couple of acquisitions. So I was wondering about the potential that the guidance could have been raised and maybe why it wasn't necessarily raised on the revenue side.

Yes. Good question. I mean I think we're one quarter into the year, but I think your comment is correct. I think we do feel like we have some good momentum on the top line side. I think it's just a little early to kind of make meaningful changes to to any of the guidance. But no, I think incrementally, we do feel positive about the top line. I think some of the economic weakness, I'll call it, that I just talked about. I made in my comments, some comments on direct sales side. Some of our customers just sort of incrementally less purchasing. So there's a little bit of a drag there as well. And given how early we are in the year, I think that's what landed us at the guidance that we've reiterated.

And then -- on your comment earlier about hitting some sort of inflection in '27 in terms of these margin improvement initiatives. Could you just kind of bucket for us what categories of savings you expect to achieve with these projects and how they will kind of operationally flow through into the business?

Sure. I mean there's a number of things, and I talked about some of them in a little bit more depth last quarter. But when you look at some of the bigger opportunities that are out there, I'll give a couple of examples. One of them is sort of the enablement of what I'll call, global inventory sharing, which is across our used garment portfolio, today, we don't meaningfully share used garments across different facilities. .

And so that's something we're actively working through with our tech initiatives as well as our operational execution teams to put the technology and processes in place to enable that. That has a meaningful impact. Now -- as you save on merchandise, as you all know, less new merchandise go in service ultimately materializes as what would have been new merchandise coming in service, amortizing over time. So it's not an immediate margin impact. So that's something that as we go through '27, we hope to be enabling and I don't have a date right now that I'd give to you to say when will that be enabled.

But then there will be a longer tail to that to get the full benefit of starting to reutilize that used merchandise in a more meaningful way -- couple other opportunities that are somewhat larger scale. We have some new products that we will be launching in the facility service area that will allow us to penetrate our customers further but also allow for some meaningful sourcing improvements in some of those products. And that's something, again, that we expect to be launching over the course of '27. So part of the reason that '27 seemed like a pivot year is because we believe it will be that a number of these things will be going live, but the full impact of them won't be hitting until later in that year or even into the year after.

So as we go forward over the upcoming quarters, we'll be able to crystallize some of that timing better for everybody. But there are some meaningful initiatives that we feel can inflect the margins. At the same time, some of the operational improvement things are more ongoing, and we'll start to build over the course of '27 into the upcoming years. That being said, there's still a fair amount of investment in execution around these tech and other initiatives to get them off the ground and that will keep -- as we've talked about going through this year, some of the margins muted until we hit that inflection point.

But part of that journey is also, as you get to the other side of these things, meaningfully taking advantage of our new infrastructure to sort of moderate the G&A machine that we've been managing with all of these tech projects and other projects to a point where some of them will be enabled by the technology, more automation, centralization, inefficiency, and some will just be the wind down of some of the additional resources that are supporting all of these initiatives.

So hopefully, that gives you a sense it's not just around the corner, but we are getting to a much closer line of sight to these things starting to inflect.

[Operator Instructions] our next question will be coming from Andrew Steinerman of JPMorgan. Andrew.

This is Alex Hess on for Andrew Steinerman. I wanted to maybe start with the margins in the quarter. Could you elaborate how much of the in-year sales and service investments fell in 1Q? And should we expect this pace to continue where will it moderate from here? Just trying to sort of think about the margin impact there?

Yes, good question. And I made the comment that some of these investments sort of materialized over the back half of last year. So when you think about that from a year-over-year quarter perspective, some of these margin impacts. These investments are more pronounced in the first quarter than they will be as you move throughout the year. Yes. I don't think it's a stretch to say that the first quarter from some of those specific investments is sort of the biggest impact based on the way those costs trended last year and the way we expect them to trend this year. I think that's what you're getting at with the question...

Correct, sir. And then on the ERP implementation, can you let us just sort of know what that -- where that stands? What still needs to be done? And Keep in mind, this is a very big project for you guys. Do you have a firmer sense of when in '27 ERP implementation will be complete? And then anything we need to just sort of keep in mind with respect to the ERP implementation?

Yes. So when you look at this year, there will be some releases scheduled for this year, the more core financial foundation of the ERP. In '27, there will be some supply chain centric and some procurement enhancements that will come online. We don't have the exact end dates for those yet. But in the bulk of the next 18 months, this will be largely playing out. And that sort of fits with the time line I'm giving as some of these benefits start to materialize. So this year is primarily still foundational and then as we get into next year, there is some more of those supply chain pieces that will come online.

Yes. What I would add is when we first started talking about the ERP, we said that it was large or that the time line took us largely through 2027 with that last release being supply chain centric, delivering some of the capabilities or enabling some of the capabilities that Steve spoke about sort of benefiting the latter half of '27 and into '28. That time line really hasn't changed. Again, Steve had mentioned this year, we're going to be focused on the core finance modules and starting to progress that third and final release that will take us through 2027. .

And I'm showing no further questions at this time. I would now like to turn the call back to Steven Sintros for closing remarks.

I want to thank everyone for joining us this morning to review our first quarter results for fiscal '26 Thank you, and have a great day.

And this concludes today's program. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Q4 2025 UniFirst Earnings Conference Call [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Steven Sintros, President and Chief Executive Officer. Please go ahead.

Thank you, and good morning. I'm Steven Sintros, UniFirst's President and Chief Executive Officer. Joining me today is Shane O'Connor, Executive Vice President and Chief Financial Officer. Like to welcome you to UniFirst Corporation's conference call to review our fourth quarter results for fiscal year 2025. This call will be on a listen-only mode until we complete our prepared remarks. But first, a brief disclaimer. This conference call may contain forward-looking statements that reflect the company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties. The words anticipate, optimistic, believe, estimate, expect, intend and similar expressions that indicate future events and trends identify forward-looking statements.

Actual results may differ materially from those anticipated depending on a variety of risk factors. For more information, please refer to the discussion of these risk factors in our most recent Form 10-K and 10-Q filings with the Securities and Exchange Commission. We closed our fiscal 2025 with a solid fourth quarter that modestly exceeded our expectations in top line performance and was in line with our expectations on the profit side. We accomplished a lot as a team in fiscal '25 that will help strengthen and grow our company as we move forward while advancing our investments in technology and other organizational initiatives. I want to sincerely thank all our team partners who continue to always deliver for each other and our customers as we strive towards our vision of being universally recognized as the best service provider in the industry, all while living our mission of serving the people who do the hard work.

We serve the people who do the hard work as they are the workforce that keeps our communities up and running. They are our existing and prospective customers as well as our own UniFirst team partners. Our mission is to enable those employees and their organizations by providing them the right products and services to do their jobs successfully. Whether that means providing uniforms, workwear, facility services, first aid and safety, clean room or other products and services, our goal is to partner with our customers to ensure that we structure the right program, products and services for their business and their team, all while providing an enhanced customer experience.

Shane will soon share further details regarding our quarterly performance. However, I would like to provide a brief overview of the fiscal year. Full year revenues reached $2.432 billion, representing an increase of 2.1% compared to fiscal '24 after adjusting for last year's additional week of operations. While this level of top line growth does not yet reflect our long-term ambitions, we are confident that we are establishing a strong foundation for elevated performance in the years to come. From an adjusted EBITDA perspective, our performance reflects solid progress in operational execution and gross margin enhancement. In fiscal '25, both the sales and service organizations saw improvements in key performance metrics. We installed more new business than we did in fiscal '24, even though fiscal '24 included an additional week of operations and the installation of a top 3 account.

Although fiscal '25 started slowly, the year concluded with its highest quarter of new account installations, providing momentum into fiscal '26. We also saw notable improvements in retention in fiscal '25 after 2 years of elevated lost business. We remain confident in our ability to drive continued improvement in customer retention as key leading indicators such as NPS scores and customers under contract continue to trend positively. Recent enhancements to our growth strategy are delivering progress, though the pace of improvement has been moderated by a softer employment environment impacting parts of our customer base. As noted over the past few quarters, reductions in wearer numbers have become more pronounced and continue to affect overall growth rates. Nonetheless, fluctuations in employment cycles are a familiar challenge to our company, and we remain committed to concentrating on factors within our control to drive improved performance.

During fiscal '25, we made some important organizational changes that generated positive momentum in our overall execution during the year and more importantly, positions us well going forward for greater improvements in overall performance. Earlier this year, the organization welcomed Chief Operating Officer, Kelly Rooney, a strategic addition to our leadership team. Kelly has unified our operational approach and accelerated the company's transition toward a process-oriented and results-driven operating model. She introduced the UniFirst Way, a growing collection of service-focused procedures designed to enhance the customer experience and promote operational excellence.

The positive impact of her contributions is already evident as we anticipate further advancements in retention, customer growth, efficiency and overall performance as these initiatives progress. Equally important, Kelly has successfully preserved and strengthened the core aspects of UniFirst culture, which remain a competitive advantage and essential to our long-term success. Her extensive operational expertise, combined with our commitment to empowering employees align seamlessly with our dedication to always deliver for both our customers and our team partners. Aligning operations under Kelly has enabled a change in ownership and structure of our sales organization as well.

Direct oversight over local sales resources is now moving from operations -- from our operations team to the sales organization led by our Executive Vice President of Sales and Marketing, David Katz. This adjustment is intended to clarify responsibility for performance within both sales and operations with ongoing collaboration between both functions. The sales team will continue advancing toward a tiered selling model to align each sales representative skills and experience with the most appropriate prospects. This model has already delivered measurable improvements in sales effectiveness and conversion rates. Building on this momentum, further investment, including strategic headcount growth is planned for fiscal '26, positioning the organization for stronger customer acquisition and overall revenue growth in the future.

In addition to sales, we are making other investments impacting fiscal '26 to ensure we can support our primary near-term goal of accelerating organic growth. For example, during the second half of fiscal '25, we invested in strengthening our service teams, expanding both capacity and stability. These enhancements position us to drive improved performance across all key aspects of our growth model, expansion of products and services for existing customers, customer retention and strategic pricing approaches. We will accomplish this through key initiatives targeting each of these areas of opportunity. Together, these initiatives are designed to continue improving our promise to provide a differentiated level of service and business partnering with our customers to ensure we provide all the value we can to their businesses.

We further expect to enhance overall operating performance and create a stronger foundation for continued growth in the years ahead. Near-term profitability will also be impacted by the ongoing investments and costs related to complete the remaining phases of our technological transformation. Over the next couple of years, we expect these investments will reach their peak as we complete the implementation of our ERP system and other related initiatives.

These efforts are essential to building a more efficient data-driven foundation that will enhance performance and scalability over the long term. Looking ahead, we also expect the influence of tariffs will impact our short- to medium-term profitability. Through the end of fiscal '25, newly imposed tariffs have not had a significant impact on our results, primarily because goods procured at higher costs require time to move through our supply chain and then usually amortized over an estimated useful life. We believe we are better positioned to navigate the evolving trade situation with our efforts over the last several years to improve the diversification within our supply chain.

However, the situation remains dynamic with continued developments. Depending on how the situations evolve, the impact of tariffs on fiscal '26 could escalate from our current estimates. We continue to take a patient and prudent steps to minimize the impact of any cost increases through leveraging the most advantageous sources for our products as well as by working with our customers where appropriate to share the cost increases we're seeing. As we move through fiscal '26, we will continue to provide updates on the impact that these factors are having on our results. Beyond the near-term impact of the items I discussed, we remain highly optimistic about our ability to drive meaningful improvements in overall profitability.

As we look ahead, several key areas have been identified that are expected to strengthen margins and enhance returns in the coming years. Notable examples include robust incremental profitability resulting from accelerated growth, particularly through improved customer retention and increased adoption of products and services by existing customers, which delivers higher returns compared to new account installations, focused operational leadership committed to promoting execution, consistency and continuous improvement in line with the UniFirst Way, optimized procurement, inventory management and sourcing facilitated by our Oracle ERP platform, strategic rationalization of resources and infrastructure that was built to support our multiyear digital transformation; and advancing our commitment to safety and operational efficiency through the ongoing implementation of our telematics program, which will soon cover our entire vehicle fleet.

This initiative features both inward and outward-facing cameras in every vehicle, representing a strategic investment that delivers multiple long-term benefits. Most importantly, it enhances the safety of our team partners, while also contributing to improved profitability by reducing claims and insurance costs and boosting fuel efficiency. This is also a good example of where we are incurring costs today, which will provide measurable returns for the organization in the years ahead.

To summarize, we are laser-focused on our goal of driving organic growth to mid-single digits and driving meaningful EBITDA margin improvements into the high teens. We are confident over the next couple of years, we can make steady progress, particularly toward those top line goals. While fiscal '26 is expected to reflect a temporary step back in profitability, we are resolute in our belief that investments in growth are essential to achieve our longer-term objectives and unlock a new set of opportunities in the years to come. We also believe that working through the current sourcing and cost environment will require time, patience and thoughtful execution to ensure we are taking care of both our customers and our shareholders as we work through these changes.

Although most of my comments thus far have focused on our largest segment, Uniform and Facility Service Solutions, we also continue to be excited about our First Aid and Safety Solutions segment, which offers significant potential for sustained growth and enhanced profitability. Adjusted for the additional week in the previous year, we achieved close to 10% growth in fiscal '25 and anticipate double-digit expansion again in fiscal '26. Investments in sales and service infrastructure, along with the completion of several small acquisitions, continue to strengthen our market presence, enabling us to better serve both existing UniFirst customers and prospective customers seeking these solutions. Our First Aid and Safety products and services play an integral role in addressing customer challenges through comprehensive integrated services -- integrated services.

By improving route density and increasing customer adoption of our full range of services, we expect continued improvement in this segment's profitability. Notably, we saw incremental advancement in First Aid's adjusted EBITDA during fiscal '25. And while further growth investments will mute significant profitability improvements in fiscal '26, we do expect the inflection point to sustain higher profits are within reach. Our balance sheet and overall financial position remain robust, supported by a strong year of operating cash flow. We intend to continue deploying cash flows and making strategic investments that enhance our company's strength and increase shareholder value.

We continue to identify several promising opportunities for investment, including infrastructure enhancements and automation initiatives to promote growth, efficiency and profitability, strategic acquisitions aiming at expanding scale and improving efficiency and increased activity in our share buyback program, reflecting our confidence that investing in UniFirst stock will deliver significant long-term returns as we execute on our strategic focus -- our strategy focus on accelerated growth and sustainable profitability.

In conclusion, we are confident in the company's strategic direction to deliver enhanced performance in fiscal '26 and beyond. Our initiatives are designed to accelerate growth, strengthen profitability and deliver a differentiated experience for our customers. By embracing our always deliver philosophy, we remain committed to creating value for all stakeholders, including our employees, customers, the communities we serve and our shareholders. With that, I'll turn the call over to Shane, who will provide more details on our outlook as well as our fourth quarter results.

Thanks, Steve. Consolidated revenues in our fourth quarter of 2025 were $614.4 million compared to $639.9 million a year ago. The fourth quarter of 2025 had 1 less week of operations compared to the prior year due to the timing of our fiscal calendar. Excluding the extra week in fiscal 2024, revenue growth in the fourth quarter of fiscal 2025 was approximately 3.4%. Consolidated operating income for the quarter was $49.6 million compared to $54 million in the prior year. And net income for the quarter decreased to $41 million or $2.23 per diluted share from $44.6 million or $2.39 per diluted share. Consolidated adjusted EBITDA for the quarter was $88.1 million compared to $95 million in the prior year.

Our fourth quarter results -- or our financial results in the fourth quarters of fiscal 2025 and fiscal 2024 included $1.4 million and $1.8 million, respectively, of costs directly attributable to our key initiatives. The effect of these items on the fourth quarter of fiscal 2025 and 2024 decreased operating income and adjusted EBITDA by $1.4 million and $1.8 million, respectively, net income by $1.1 million and $1.3 million, respectively, and diluted EPS by $0.05 and $0.07, respectively. As announced in last week's press release, starting in the fourth quarter of 2025, we are reporting our results under 3 segments entitled Uniform and Facility Service Solutions, First Aid and Safety Solutions and Other.

Our primary segment, Uniform and Facility Service Solutions now includes our cleanroom operations, along with our industrial operating locations due to it having a similar business model as well as having shared customers, resources and technologies. This new structure aligns with our management approach and resource allocation. This change will also allow investors more visibility to our Nuclear Services division, which is now broken out in the Other segment and experiences more volatility on an annual and quarterly basis. For further details on this change and our segment methodology, please see the Form 8-K filed with the SEC on October 17, 2025. Uniform and Facility Service Solutions revenues for the quarter were $560.1 million, a decrease of 4.4% from the fourth quarter of 2024.

Organic growth, which excludes acquisition-related revenues, the impact of any fluctuations in the Canadian dollar and the impact of the extra week was approximately 2.9%. Uniform and Facility Service Solutions organic growth rate benefited from solid new account sales and improved customer retention. In addition, we discussed last quarter that our growth was impacted by the timing of direct sales, which trended lower in the third quarter compared to the same period in fiscal 2024. As expected, the timing of those direct sales contributed to our fourth quarter growth as did a large customer buyout. Uniform and Facility Service Solutions operating margin decreased to 8.3% for the quarter from 8.7% in the prior year. And the segment's adjusted EBITDA margin decreased to 14.8% from 15.3%.

The costs we incurred related to our key initiatives were recorded to the Uniform and Facility Service Solutions segment, which decreased its operating and adjusted EBITDA margins for the fourth quarters of fiscal 2025 and 2024 by 0.2% and 0.3%, respectively. The segment's operating and adjusted EBITDA margins in the fourth quarter of fiscal 2025 were down from the fourth quarter of fiscal 2024, which benefited from the extra week of operations. Furthermore, the quarterly results reflect some of the additional investments that Steve discussed that are intended to accelerate growth, improve customer retention through operational excellence and support our digital transformation. Energy costs for the quarter were 4% of revenues, down from 4.1% a year ago.

Our First Aid and Safety segment's revenues in the fourth quarter of 2025 increased to $31.1 million with organic growth of 12.4%, driven by the segment's van business. Operating income and adjusted EBITDA during the quarter was $0.5 million and $1.5 million, respectively, as the results continue to reflect the investments we are making in the business. Revenues from our other segment, which consists of our Nuclear Services business, were $23.3 million, a decrease of 5.3% from the fourth quarter of 2024 due to lower activity out of the North American nuclear operations. As we mentioned in the past, this segment's results can vary significantly from period to period due to seasonality as well as timing and profitability of nuclear reactor outages and projects.

At the end of our fiscal year, we continue to reflect a solid balance sheet and financial position with no long-term debt and cash, cash equivalents and short-term investments totaling $209.2 million. In 2025, we generated solid cash flows from operating activities totaling $296.9 million. Capital expenditures totaled $154.3 million as we continue to invest in our future with new facility additions, expansions, updates and systems. During the year, we capitalized $26.4 million related to our ongoing ERP, which consisted primarily of third-party consulting costs and capitalized internal labor costs. During fiscal 2025, we also purchased approximately 402,000 shares of common stock worth $70.9 million.

At this time, we expect our full year revenues for fiscal 2026 will be between $2.475 billion and $2.495 billion and fully diluted earnings per share will be between $6.58 and $6.98. This guidance includes $7 million in costs that we expect to incur directly attributable to our key initiatives, which at this point relate primarily to our ERP project. Our guidance further assumes at the midpoint of the range, the net income is $124.1 million. Consolidated operating income and adjusted EBITDA are $158.8 million and $319.7 million, respectively. Uniform and Facility Service Solutions organic revenue growth is 2.6%. Uniform and Facility Service Solutions operating and adjusted EBITDA margins are 6.6% and 13.3%, respectively. Energy costs will be 4% of revenues in fiscal 2026, in line with 2025. And fiscal 2026's effective tax rate is expected to be 26%, an increase from 2025, primarily due to lower expected tax credits benefiting the upcoming year.

As Steve discussed, additional investments we are making in our Uniform and Facility Service Solutions segment to accelerate growth, improve customer retention and support our digital transformation are contributing to a margin headwind in 2026. In addition, our operating results also reflect our current expectations of the impact of tariffs. Share-based compensation increased in fiscal 2025 and a larger increase is anticipated in fiscal 2026. These increases are primarily due to a change the company made last year in our share-based grants vesting lives. As a result of the change over the next couple of years, share-based compensation expense will be elevated prior to returning to a more normalized level.

As a reminder, increases in stock-based compensation impact operating income, but are excluded from adjusted EBITDA. Our First Aid and Safety segment's revenues are expected to be up approximately 10% compared to 2025 as the ongoing investments in our van business are expected to drive continued double-digit growth. Segment's profitability is expected to once again be nominally positive as the results continue to reflect the investments we are making in the business. The other segment's revenues are forecast to be down from 2025 by 16.3%. This assumes that our nuclear service business will take a step back in fiscal 2026, primarily due to the expected wind down of a large reactor refurbishment project during the year as well as a cyclically lower number of reactor outages in 2026.

Top line headwind will have a more meaningful impact on the profitability of the segment due to the high fixed cost nature of the Nuclear Services business. Although 2026 is expected to be a down year, we feel we are well positioned to capitalize on this segment's unique capabilities as future projects become available as well as with the recent resurgence in nuclear investments in the market. We expect that our capital expenditures in 2026 will again approximate $150 million, which remains elevated as a percentage of revenue, primarily due to higher application development investments we are making, most significantly related to the ERP implementation.

For an update on our ERP initiative, our project continues to progress largely in line with our intended schedule that has the implementation continuing through 2027. As of August 30, 2025, we had capitalized $45.3 million related to this initiative. Midway through fiscal 2026, we expect to go live with our current release, which is focused on moving our general ledger and finance capabilities into the new Oracle Cloud solution. Upon deployment of the system, we will start to amortize the amount capitalized. As a result, the outlook includes an additional $4 million in fiscal 2026 related to the amortization of the system. Our guidance assumes our current level of outstanding common shares and no unexpected changes generally affecting the economy. This concludes our prepared remarks, and we would now be happy to answer any questions that you might have.

[Operator Instructions] And our first question comes from Manav Patnaik of...

This is Ronan Kennedy on for Manav. Can I confirm, please, at a high level, perhaps the puts and takes to the guided 2.6% organic for Uniform Facility Services. Given the constructive commentary on positioning the company for stronger organic through better acquisition retention, already seeing some measurable improvements in the sales effectiveness and the conversion rates. Is it that the initiatives will take time? Or is there also an element of the environment and what you alluded to as the more pronounced reductions in wearers and anticipating further fluctuations in the employment cycles? Kind of a high-level characterization of the drivers for that outlook, please?

Yes. I think you covered it pretty good there, Ronan. But you're right. I think the momentum we're getting on the sales and retention side, we talked about elevated or reduced retention, I should say, over a couple of years. It improved meaningfully in '25. We're projecting additional improvements in '26 that will affect the back half of '26 and into '27. Your comment about the economic outlook in terms of impact on wearer adds versus reductions over the last quarter or 2, based on limited hiring, we've been negative in adds versus reductions and effectively, you're assuming a similar situation looking at kind of employment outlook over this year.

So we're not expected to get any pull in probably -- or are expecting some headwind in that area. So that is part of the formula that leads to the current year organic growth. But as we sort of build on some of the initiatives and investments we're making that I talked about, we expect to gain momentum to put us in a position to accelerate growth in the following years as well.

That's helpful. And then a similar question, if I may, please, on margins in terms of -- for '26, the puts and takes in terms of the improved execution, consistency, the continuous improvement and then other things such as the optimized procurement, inventory management, offset by, I think, the investments on growth, retention, digital transformation and then also the tariff impact. If you can kind of size how to think about the puts and takes from those drivers for '26 for margins, please?

Sure. A couple of the items you mentioned there on better inventory management and so on. These opportunities are more ERP enabled that will tail this year a bit. But in general, on the items impacting the year most significantly, we really mentioned 4 things as being the primary factors. We mentioned tariffs, we mentioned sales investments, service investments and a peaking of investments to kind of get through the digital transformation that we're going through. All of those things probably contributed reasonably evenly to the, call it, 80, 90 basis points impact on our margins. Now it's not a perfect characterization across all of those items. But generally, it's in that range.

We do expect some offsets to those things in terms of the operational efficiency and so on. But again, we're really trying to unlock that better retention that improved selling to our existing customers. We are seeing momentum in those areas that we think can expand growth, particularly beyond this year's guidance. And so really, we view this year as a transitional year of making some of those investments. And to your point, you know how this business works. As you build momentum, it builds through your numbers. It doesn't sort of hit all of a sudden in a quarter and in some cases, even a year. But again, those investments, sales, service, getting through our digital transformation and then the tariffs all have a pretty, call it, 20 basis points or so impact then offset by some of the other positives.

And our next question comes from Kartik Mehta of Northcoast Research.

Steve, just maybe to add a little bit more color to the margin impact and investment. Would you anticipate any of those benefits occurring in the latter part of '26? Or do you think the way the investments are scheduled, it will take until '26 before you start seeing some of the benefits?

Until '27, is that what you're referring to?

Yes, I apologize, yes. Until '27.

Yes. No, look, I mean, I think as we -- you can use sales or service, I think the technology ones that are ERP enabled, which we've been talking about for the last year or so, are not going to emerge in '26 as much. We're talking about going live with part of our ERP system, which is really the financial core. But as we move into more of the inventory management, procurement and other things, those are really '27 and beyond benefits.

In terms of the investments we're making in sales and service, those will start to build throughout the year. We've been ramping up in some of those areas. We've made good momentum in sales efficiency and retention improvements in the last year. And in my comments, I sort of talked about how some of those improvements have been offset by some of the challenges from a wearer and employment growth perspective. But part of the reason we're making those investments is to make sure we can sort of power through maybe what might be a bit of a softer employment environment in '26 and then start to see more momentum in the back half and as we get into the following year.

And maybe this is a little bit harder, but is there a way to quantify the benefits you'll get from the investments in the sales and servicing part of the business?

Yes, that is a little tougher. I mean, certainly from the sales and the service, it's a balance, right? Like we are driving toward mid-single-digit growth. When you look at our sales organization, I'll start there. It's a little bit easier to talk about. When you look at our sales organization, we continue to look at ways to drive sales effectiveness and efficiency with the heads we have, but also recognizing as we grow and as we shift our sales organization, I alluded to this, to one where we have more of a tiered selling model with different sellers responsible for different prospects. That transition is causing us to probably run a little bit heavy on the sales side as we kind of go through that transition.

We want to make sure we carry that momentum, and that's why I talked about a couple of times that driving that organic growth higher is really our top priority right now. We do believe that the benefits on the margin side are there for the taking. But without that strong organic growth, which we think these investments are necessary to make sure we achieve, the profit benefits in and of themselves would be nice, but not as sustainable as if we can get this growth to the places we think we can. On the service side, similarly, it's a balance, right? We have benefited from a more stable service organization this year, and we've talked about that a little bit from the perspective of if you go a few years before that, overall employment environment was stronger, but also led to more challenges in employee turnover and things like that.

That has stabilized, and now we're capitalizing on that stability with some additional investments to ensure that we can unlock all the different areas of growth that exist in our service team. When you think about growth, sales is obviously the one that stares you in the face. But the other 3 aspects of the growth model, retention, selling to our existing customers through our service team as well as managing price in an effective way are really on our service team. And we want to make sure we're strong enough there to capitalize on all of those avenues.

And our next question comes from Tim Mulrooney of William Blair.

This is Luke McFadden, on for Tim. My first was just on price. You've shared in recent quarters that pricing remains challenging. I'm curious if you're expecting that to alleviate as we move through 2026, just maybe as customers find their footing with tariffs? Or is this the go-forward dynamic you're expecting to operate under for the foreseeable future here?

Yes, it's a good question, Luke. I think as you reiterated, we had gone through a couple of years of heavy inflation, which made a more, call it, productive pricing environment. That has certainly shifted, and we were experiencing that. I think the environment with the tariffs, as I alluded to a couple of times, is still pretty fluid. I think many organizations as we certainly are, are trying to take a patient and prudent approach, particularly because the impact of our tariffs on our business sort of flow in over time. And the dynamics around changing trade regulations and trade agreements is fluid and their development seemingly every week. And so we are going to manage our approach during that.

I think historically, customers have been good partners to us when we've been good partners and managed through periods of increasing cost. And so we do anticipate that being an avenue that we will work through. But I think in general, there also is some inflation -- what's the right word, inflation -- fatigue. Thank you, Shane. From the last few years. And so it's sort of a difficult inflection point where I think a lot of people are looking to recover from the inflationary period and now seeing some of the tariff impact. I think it does make it a challenging environment in that regard, which is why we're trying to be patient and deal with the dynamics of the situation over time. So I know it's a little bit of a long-winded answer, but I think we will be working through things and expect our partners -- our customers to partner with us.

No, yes, that's great and really helpful color. And kind of maybe building off that more nuanced question specifically around client bases. I wanted to ask about any changes you're seeing with -- in your manufacturing clients. I know earlier, you had talked about kind of a pullback from these clients due to those tariffs, being more impacted, but maybe starting to see some headlines from some larger manufacturers that this group might be adjusting to and acclimating to the current situation. Has that at all aligned with what you're seeing around this client group specifically?

Yes. Probably too nuanced at this point to really say one way or the other, Luke. I would say that looking at the broader employment trends across kind of our more traditional uniform wearing industries, I spoke to sort of the weakness we're seeing in the hiring there. I think a lot of companies are digesting. And look, over the long term, is there an impact that some of these manufacturing operations digest and potentially bring some tailwind to employment back here in North America. I think that's possible. I think at this point, it's probably too nuanced, and we're not seeing big momentum one way or the other.

And our next question comes from Jason (sic) [Justin] Hauke of Baird.

It's Justin. I just -- I guess I'm still a little confused on the sales and service investments that you're talking about for '26, that is outside of the $7 million of key initiative costs, right? I mean the key initiative is still just the ERP and the system investments you've already been making. And I just want to make sure I understand that.

Yes, absolutely. The $7 million, and at this point, I think it's good to clarify that the $7 million is really very specifically directly related to the ERP. And it really is from -- as you go through a large project like that, there are certain aspects that are not capitalizable, and it's really the fallout from those additional costs we're spending with some of our primary contractors for that project. The sales and service investments, I mean, this is a very simplistic way of looking at it, Justin, is in both of those organizations, we're making investments a bit ahead of the projected revenue growth for next year designed to accelerate the growth in years to come, right?

It's really finding that right balance of each of those organizations. Quite frankly, sales is the best example. You could pull back on sales and probably show similar growth next year and better profits, but that's not going to get you to the more sustainable higher levels of growth that we're working to get to. But those are 2 completely different things, just to clarify and answer your question.

Okay. All right. That's helpful. And then there was a comment you made, and maybe I missed it, I apologize, but I thought you said that you guys had record new sales this year. And I guess, just confirming if that's what you said or if I misunderstood that. And then where that's primarily coming from? Is it cross-sell? Is it new business? Just any color on vertical maybe?

Yes. The comment I made about sales is that we did exceed our total selling new business from a year ago, even though a year ago had the extra week and the very large account install from a national perspective. If you look at the results this year, is it the biggest year of sales ever? I'd have to go back and look. There's been a couple of other large ones. But it is probably one of the best install years that we've had. When you look at where it's coming from -- yes, it's pretty broad-based. I think we continue to have some success on the national side over the last couple of years. We have had some good larger wins, but the bulk of the business still comes from what I'll call the local and regional business.

I think that line between national and local is becoming a little more blurred, and that goes back to that tiered selling approach as we have diversified our rep base to include reps in that middle ground that are specifically focused on what we'll call major accounts versus national accounts. And those are more the larger regional accounts. And I think we've had some real good success there that helped this year's sales. And that's the organization we're continuing to build out and causing some of that cost investment.

Our next question comes from Brianna Kamdoum of UBS.

This is Brianna Kamdoum, on for Josh Chan. Can you provide some color on the trajectory of margins in fiscal '26? Are you expecting to see margin expansion at any point during the year?

That's a good question. We don't typically give that quarterly breakdown, particularly at this point. I think our margins and the trajectory of them will probably reasonably follow our prior patterns. One thing I will say, and I don't have this fully quantified. But as I talk about the impact of tariffs, those probably do become a bit more pronounced in the back half of the year based on what I said, right? You bring in more products that are at a higher cost base. They sit in your distribution center for a month or 2. They start getting amortized into your merchandise and service. And so that impact of the tariffs does build throughout the year. I'd have to kind of go back to the model to give you a best answer on the rest of it, but it's something we can give you updates on as we move throughout the year for sure.

Yes. I would echo that, the fact that it's probably a good expectation is that it's going to follow our margin trajectory that we've historically had. Most notable difference would be that second quarter where the profitability is down because of a number of costs that we incur specifically in that quarter. So that would probably be the best assumption.

And then for a follow-up, you mentioned softer results in nuclear. Can you frame out what impact you expect to have in fiscal '26? And can you remind us which quarters are more likely to see softness, understanding that this is a more volatile business?

Sure. I think when you look at the nuclear business and we talk about the expected wind down of a large project, we expect that wind down to occur over the first quarter. Our first quarter and third quarter for that business is always seasonally the best quarter. It may be a little more pronounced in the first quarter this year because that project is still active. Other than that, we expect the normal seasonality in that business across the quarters.

I'm showing no further questions at this time. I'd like to turn it back to Steven Sintros for closing remarks.

Well, again, I'd like to thank everyone for joining us today to review our results and talk about our fiscal '25 and our outlook. We look forward to speaking with you all again in January when we expect to report our first quarter performance. Thank you, and have a great day.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

Good day, and thank you for standing by. Welcome to the Q3 2025 UniFirst Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Steven Sintros, President and Chief Executive Officer. Please go ahead.

Thank you, and good morning. I'm Steven Sintros, UniFirst's President and Chief Executive Officer. Joining me today is Shane O'Connor, Executive Vice President and Chief Financial Officer. We would like to welcome you to UniFirst Corporation's conference call to review our third quarter results for fiscal year 2025. This call will be on a listen-only mode until we complete our prepared remarks, but first, a brief disclaimer.

This conference call may contain forward-looking statements that reflect the company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties. The words anticipate, optimistic, believe, estimate, expect, intend and similar expressions that indicate future events and trends identify forward-looking statements. Actual future results may differ materially from those anticipated, depending on a variety of risk factors. For more information, please refer to the discussion of these risk factors in our most recent Form 10-K and 10-Q filings with the Securities and Exchange Commission.

Our third quarter results were largely in line with our expectations. It is rewarding to see our recent investments beginning to yield measurable returns, evidenced by gross margin improvement, and more effective execution across the business. I want to sincerely thank all of our team partners who continue to always deliver for each other, and our customers, as we strive toward our vision of being universally recognized as the best service provider in the industry, all while living our mission of serving the people who do the hard work.

We serve the people who do the hard work are they -- as they are the workforce that keeps our communities up and running. They are our existing and prospective customers, as well as our own UniFirst team partners. Our mission is to enable those employees and their organizations by providing the right products and services to do their job successfully and safely.

Whether that means providing uniforms, workwear, facility services, First Aid and Safety, cleanroom, or other products and services, our goal is to partner with our customers to ensure that we structure the right program with the right products and services for their business and team, all while providing an enhanced customer service experience.

Third quarter consolidated revenues were $610.8 million, an increase of 1.2% from fiscal '24. Earnings in the quarter reflect improvements in our gross margin, as well as several unusual items that impacted our profitability, which Shane will discuss in more detail shortly. Our team continues to focus on investing in our people, technology and infrastructure, to further enable growth and profitability. The benefits of this strategy will take time to be fully realized, but we are confident in our ability to seize the significant opportunities ahead and drive significant shareholder value.

As mentioned, we are pleased with the progress we continue to make in the areas of operational execution and gross margin enhancement. Core Laundry Operations, key operational costs, continue to trend favorably which benefits being recognized in both merchandise and plant production expenses.

To date, we have not experienced significant headwinds from the newly imposed tariffs. However, we have started to see some of our vendors increasing prices related to their additional sourcing costs, and we foresee potential for future increases. The tariff situation remains fluid and we will continue to provide updates in the coming quarters. Overall, we believe we have positioned ourselves well to navigate the disruption, with our efforts over the last few years to improve the diversification within our supply chain.

From a top line perspective, there were positive performance trends from both our sales and service organizations in the quarter. We installed more new business than a year ago by a solid margin, and consistent with our expectations, customer retention improved compared to the third quarter of 2024, excuse me. However, a pricing environment that continues to be challenging, as well as some incremental softness in our customer wearer levels, has limited our ability to build more top line momentum. Additionally, growth in the quarter was impacted by lower direct sales revenues compared to the same quarter for the previous year.

Direct sales trends can vary with respect to timing. However, our full year direct sale assumption remains the same and continues to reflect growth over fiscal '24. As a company, we will continue to focus on investments in the business that will enhance our ability to attract new customers, sell additional products to our existing customers, and improve our customers' experience and drive improved retention.

From a profitability perspective, we continue to believe there is ample opportunity with ongoing efforts focused on driving continued improvement and consistency in our operational execution. We are excited about the progress the team is making in aligning our operations around the UniFirst way, which focuses on creating and executing scalable, repeatable processes to drive a consistent and differentiated customer experience, and is critical for us to achieve our goals.

Opportunities also exist in the areas of strategic pricing, procurement sourcing, inventory management among others. And as we have talked about, our new ERP system and related technology investments will be fully enabling these benefits. However, ahead of the full implementation, we are working to take advantage of the opportunities available to us in the midterm and setting ourselves up for more robust improvements post deployment.

With that, I will turn the call over to Shane, who will provide more details on our third quarter results, as well as our outlook for the remainder of fiscal '25.

Thanks, Steve. In our third quarter of fiscal 2025, consolidated revenues were $610.8 million, up 1.2% from $603.3 million a year ago, and consolidated operating income decreased to $48.2 million from $48.5 million, or 0.6%. Net income for the quarter increased to $39.7 million, or $2.13 per diluted share, from $38.1 million, or $2.03 per diluted share. Consolidated adjusted EBITDA increased to $85.8 million from $84.8 million in the prior year, or 1.2%.

Our effective tax rate increased to 25.7%, compared to 22.9% in the prior year. As a reminder, our tax rate can move from period to period based on discrete events, including adjustments to our tax reserves, the timing of tax credits, and excess tax benefits and deficiencies associated with employee share-based payments.

Our financial results for the third quarters of fiscal 2025 and 2024, included approximately $1 million and $3.9 million, respectively, and costs directly attributable to our key initiatives, which are currently focused on our ongoing ERP project. The effect of these items on the third quarter of fiscal 2025 and 2024, combined to decrease operating income and adjusted EBITDA by $1 million and $3.9 million, respectively, net income by $0.7 million and $2.9 million, respectively, and diluted EPS by $0.04 and $0.16, respectively.

Net income and diluted earnings per share also benefited from a $2.8 million gain on the sale of a nonoperating property during the quarter. This gain was recorded to other income expense net but did not impact operating income or adjusted EBITDA.

Our Core Laundry Operations revenues for the quarter were $533.2 million, an increase of 0.9% from the third quarter of 2024. Core Laundry organic growth, which adjusts for the estimated effect of acquisitions, as well as fluctuations in the Canadian dollar, was 1.1%. Core Laundry segment's operating margin declined to 6.9% for the quarter, or $36.7 million, compared to 7% in the previous year, or $36.9 million. Segment's adjusted EBITDA margin, however, remained unchanged at 13.5%.

Costs we incurred related to our key initiatives were recorded to the Core Laundry Operations segment and decreased Core Laundry operating and adjusted EBITDA margins for the third quarter of fiscal 2025 and 2024, by 0.2% and 0.7%, respectively. During the quarter, we also incurred approximately $5.7 million in expense related to advisory costs for a strategic matter and legal costs related to an employee matter. Excluding the benefit of reduced key initiative costs, and the $5.7 million in advisory and legal expense.

Core Laundry adjusted EBITDA margin showed solid improvement over prior year. As Steve discussed, this improvement was driven by lower merchandise and production costs as a percentage of revenues, and was partially offset by higher health care claims expense. Selling and administrative costs also ran slightly higher as a percentage of revenue compared to prior year.

Energy costs in the third quarter of 2025 were 4.1% of revenues, compared to 4.3% in prior year. Revenues from our Specialty Garments segment, which delivers specialized nuclear decontamination and cleanroom products and services, increased to $47.8 million from $47.6 million in prior year, or 0.5%. Growth in the European nuclear operations and cleanroom operations were largely offset by a decrease in North American nuclear revenues. The segment's operating margin for the quarter was 22.8%, down from 23.9% in prior year. As we mentioned in the past, this segment's results can vary significantly from period to period due to seasonality, as well as the timing and profitability of nuclear reactor outages and projects.

Our First Aid segment's revenues increased to $29.8 million, from $27.3 million in prior year, or 9%, driven by growth in our van operations. Segment had a nominal operating income of $0.5 million during the quarter as the segment's results continue to reflect the investments we are making in the First Aid van business.

At the end of our third fiscal quarter, we continue to reflect a solid balance sheet and financial position with no long-term debt and cash, cash equivalents and short-term investments totaling $211.9 million. The first 9 months of fiscal 2025, cash flows from operating activities were $196.5 million, and free cash flow increased 22% to $86.7 million. We continue to invest in our future with capital expenditures of $109.8 million, repurchased $25.6 million worth of common stock, and acquired four small First Aid businesses for which we paid a total of $5.4 million.

We would like to provide an update regarding our financial outlook. At this time, we are maintaining our annual revenue guidance within the range of $2.422 billion to $2.432 billion. However, we are increasing our diluted earnings per share guidance to a range of $7.60 to $8. This adjustment reflects an updated assumption that our key initiative costs in fiscal '25 will be approximately $7.5 million, revised down from our previous estimate of $12 million.

As a reminder, fiscal 2025 includes one less week of operations compared to fiscal 2024, which included an additional week in its fourth fiscal quarter. Also, guidance does not assume future share buybacks or unforeseen economic events.

This concludes our prepared remarks, and we would now be happy to answer any questions that you may have.

[Operator Instructions] And our first question is going to come from the line of Manav Patnaik with Barclays.

This is Ronan Kennedy on for Manav. I was just looking to please -- perhaps unpack organic growth a little further. I know you talked new biz by a solid margin, improved retention, a challenging pricing and then some incremental softness in wearer levels. So can you kind of speak to and characterize the demand environment and anything of note with regards to particular end markets or client size?

And then how is that a driver versus your investments in the business to enhance new customers, sell additional products, enhance customer experience, et cetera?

Sure. I'll start with the existing customer base. In general, I think I would characterize the mood of the existing customer base is somewhat cautious in terms of investments in heads. And we have seen some targeted reductions from some of our -- and again, when I talk about our customer base, it's easier for me to have more specific visibility to some of the larger customers, but we have seen examples of cutbacks on employment levels and some targeted manufacturing sector companies.

Just in general, we've talked about last quarter, how we saw some incremental pickup in reductions, and that has continued this quarter at somewhat of a higher level, somewhat offsetting the benefits recently on improved retention, as well as solid sales performance. Obviously, those things all sort of work together. And any trend in the current quarter only impacts the current quarter so much. But when you look at the four components of growth. Again, we feel good about our new account sales and the retention trajectory that we're on, but seeing some softness in those other areas, which over the short term are impacting the overall growth.

That's helpful. And then if I may dive in -- if we may dive in a little deeper on pricing. You referenced a challenging environment and then seeing some of the vendors increasing pricing and sourcing costs. Can you give some further insight there as to the pricing dynamics? Pricing and cost...

Yes, it's a good point. I mean, obviously, we've been talking about for the last year coming out of a very high inflationary environment, the things we're taking a step back from a pricing perspective. I think as we're transitioning now potentially, and this is why it's such a fluid situation, into an environment where tariffs may be impacting vendor cost, or some of our own costs. It's a little bit of a wait and see to how that impacts pricing going forward.

I think we're sort of in this in-between state right now where companies are still looking to recover from a lot of the inflation that they experienced over the last couple of years, obviously, with an eye towards what might be coming with respect to tariffs. So I would say we're still sort of stuck in the middle of that right now, and it's unclear how that's going to play out over the next quarter or two.

And if I may sneak in a quick follow-up on that. Is there a particular area of the business where pricing has been most impacted, or could potentially be?

No, I wouldn't say so. When I talk about pricing generally, it's really across our customer base. Large, medium, small customers, right? I think we talk about the competitiveness, and I wouldn't say there's any particular sector or size of customer that is being more impacted.

Our next question comes from the line of Kartik Mehta with Northcoast Research.

Steve, I just wanted to maybe understand a little bit on new sales. Kind of the environment today if you're seeing a lengthening of the sales cycle, or if you look at contribution from new sales to overall growth, if they're different today higher or lower than they were 3 to 6 months ago?

No, I wouldn't say they're significantly different. I think we talked in the first quarter about having a little bit of a slower start to the year. Particularly from a year-over-year comparison, you remember back in early '24, we sold a really large national account. But over the last couple of quarters, we've started to pick up some momentum. So I would say it's incrementally positive today compared to 6 months ago, but not a dramatically different percentage when you look at it as a component of our overall growth.

And then on the add-stop metric. Has that -- you said it's declined a little bit compared to the previous quarter. And I'm wondering, has it gone negative? Or is it flat? What you're seeing in the business at least as far as what your customers are doing?

Yes. I think we mentioned last quarter, it flipped into the negative position and it still remains negative a little bit more so in the current quarter.

Perfect. And just one last question. Any change in the environment in your ability to sell ancillary products? Are customers getting a little bit more cautious because of the environment and maybe not buying ancillary products as much as they used to? Any change that you've noticed?

I think the caution from customers is overall. So it probably does have some ancillary impact on that. That being said, and not as much impact in the current quarter, but we've talked before about we think we have a lot of opportunities to continue to penetrate our customers more holistically over time with direct sales and other facility products that were probably somewhat underpenetrated today. So we still feel good about that opportunity. But as far as what's going on today, yes, some of that probably has wrapped up a bit in the caution.

Our next question is going to come from the line of Tim Mulrooney with William Blair.

This is Luke McFadden on for Tim Mulrooney. Maybe one here just on the key initiatives. Could you just give us an update on progress as it relates to those initiatives and drivers behind the reduction in costs for those this year? Was this primarily a reflection of better implementation than previously expected? Or is it more a timing dynamic where we should expect to see these costs maybe come through next year, or in future quarters? Just any color there would be helpful.

Yes, Luke. I'll give you an update there. As I had mentioned in my prepared comments, at this point in time, those key initiative costs are primarily attributable to our ERP implementation that we have ongoing. I would say that, that project continues to move along very, very well, right in line with the time line that we had originally established.

Where we are in that project is right now, we're in the middle of our second release which is a finance-centric release. We'll be replacing our general ledger and a lot of our other finance modules. So where we are is we've sort of just concluded a lot of the detailed design work, and we're going into the implementation phase.

When you take a look at the costs that are going through my P&L, it's not necessarily related to a lower level of spend, it really relates to the types of costs that we're incurring. Depending upon the activities that you're advancing within each individual release, you can either capitalize those costs or expense them. And right now, we are in a phase where a high percentage of those costs are being capitalized.

As we move along throughout the remainder of the phase and as we approach an eventual deployment of this release will be incurring additional costs related to change management and also training of the organization to digest the new solution. And those costs will actually be expensed. So there is the probability that we'll see some additional costs go through the P&L. But right now, the trend that you're seeing is primarily related to the activities that we're advancing.

That all makes sense and really helpful. And maybe one here, I know you said not seeing as much of an impact on the cost structure from tariffs yet, but could potentially see an impact in the future depending on how things play out.

I was hoping maybe you could just unpack that a bit more and maybe where we would expect -- or where you would expect to see some impact on the business from a cost standpoint?

Yes, sounds good. I mean I think if you look at the environment right now, and this is why it remains relatively fluid, but we've talked before about how -- if you take a look at the largest portion of our costs, it's obviously our merchandise for our customers. And the largest portion of that is garment. So I'll speak to that, and it kind of gives you a sense of the environment.

We source garments from all over the world. Some self-manufactured, some through subcontract partnerships, some through third-party vendors. The vast majority, if not virtually all, of those garments are coming from somewhere outside of the United States. Many of these countries will be subject to some level of tariff. At this point, 10% in many of the cases. And in a couple of cases, there countries, there are no tariffs at this point.

So you can sort of see that regardless of where the garments are coming from. They're getting hit with some level of tariff today. How that changes in terms of what countries work what trade deals and how all that settles out will sort of impact, or result in the ultimate impact that, that has.

Obviously, China had been a country that had been on balance experiencing higher tariffs. We don't have as much exposure there across our source base, which is positive at this point. But again, it's fluid. As the countries make different deals and we see where things settle, we'll probably be able to react a little bit more and see what the overall impact will be.

That's great. Makes sense. And if I can squeeze one more in here, maybe just to switch gears. On First Aid, you continue to see some nice growth there. I know you've made some smaller acquisitions.

Maybe could you just talk about the strength you're seeing in that business and maybe where you're having the most success?

Absolutely. Yes. We continue to be very excited about the future of that business. We've talked before about how that business is made up of really two pieces, kind of the van operations, which service the kind of rank and file street customers every day. And then we do have a wholesale business that sells through some distribution partners.

The -- we grew a little over 9% this quarter. The van business, which is the business we're really focused on growing most significantly was mid-double digit -- 15% or so growth this quarter. So we continue to see strong penetration not only with our existing UniFirst customers on the Laundry side, but just in general. We're also doing a good job penetrating those customers with all the services that First Aid and Safety bring.

When you think about that end customer in that First Aid business, it's not just the cabinet on the wall. It's safety training, it's AEDs, it's fire extinguisher certifications. It's a number of things. And so as we broaden our customer base, we're also looking to penetrate those customers more and seeing good progress in those areas.

And it's a little early in the cycle, but we're seeing at least some positive momentum as we try to push the profitability of that division as well through this growth cycle.

Our next question is going to come from the line of Justin Hauke with Baird.

Great. I guess I've got two here. I guess the first question is just thinking about your labor costs, which I don't think you really talked about here on this call.

Just anything you're seeing on labor costs there, and particularly with some of the immigration factors and some of your production labor, I guess?

Yes. Holistically, I think it's pretty stable right now. I mean, again, I kind of referenced the heavy inflation we went through over the last couple of years. And I think the combination of moves that we needed to do during that time to kind of increase wages and so on, as well as the overall kind of stabilization of the employment environment a bit, we've been in pretty good shape there. And I think that some of the improvements we're seeing in execution as that labor force has become more stable, less overtime, less turnover, higher efficiency.

So we feel pretty good there. There has been some impact from some of the immigration changes but not something notable in terms of impacting our overall performance.

Okay. I appreciate that. I guess my second one, to the extent you can comment on. The $5.9 million strategic advisory costs and the legal expense that you called out is the -- is that related to the previous kind of merger deal discussions that were out there? Or is that something else?

I'm just trying to understand why it would be in this quarter. And then on that the legal matter, is that a resolved issue? Or is this an accrual for something that's ongoing?

Yes. So that $5.7 million is really broken into those two areas, like you said. About $3.5 million was related to the prior strategic discussions with Cintas. Yes, some of those costs were -- did bleed into this quarter more significantly, but they weren't, what I'll call, recent cost if that makes sense.

With respect to the -- with respect to the other legal matter, it is an ongoing item that we built an accrual for. We don't anticipate it having any longer -- significantly longer tail to it, but we did increase the reserve for it this quarter.

Our next question comes from the line of Josh Chan with UBS.

I guess, Steve, you mentioned the wearer levels stepping down a little this quarter and then you called out manufacturing. I was just wondering how broad-based you're seeing this lower wearer levels and whether it's kind of concentrated in certain pockets? Or is it more pervasive around the customer base?

Yes. Good question. I mean obviously, with 300,000 customers, it's hard to kind of narrow that down. I would lean on that it's a little bit broader, right? No one customer, or even sector, really makes up the majority of the trend. So I think I'd probably just have to answer saying it's a little more broad-based.

Okay. That's fair. And then maybe just a quick clarification on Shane's comment about the direct sales. How big of an impact did that have on your growth in Core Laundry this quarter? Because I guess that could inform what the underlying trajectory really is?

Yes. Year-over-year, those direct sales in the third quarter were a few million dollars lower than the third quarter of a year ago. So if you kind of look at that, it's not quite a -- doing my math in my head here, not quite 0.5 point on the growth. But it did -- obviously, with the growth being a little lower, it did have an impact sort of on the trajectory that we thought was worth mentioning. And some of that will be made up in the fourth quarter. And if you look at our implied growth in the fourth quarter, you'll probably notice it's a little bit up from the trend because of some of that time.

[Operator Instructions] And our next question comes from the line of Andrew Steinerman with JPMorgan.

I wanted to jump back into the systems around the key initiatives. The CRM system, the ABS system, has been done for a while. And so I wanted to know if you feel like the company is now getting current benefits from the ABS system in terms of merchandise control, and generally kind of account level profitability. And then when thinking about the ERP system, which you said is still on track in terms of timing, just remind me, I forgot if the ERP, the Oracle system includes route management? Or is that a separate system to optimize?

Yes. Good question, Andrew. With respect to the ABS, I think absolutely is the answer. I think after the changes over a couple of years deploying that system, I think the organization is really settled into utilizing it and getting its benefits.

You mentioned merchandise control. We talked about our merchandise cost and the benefits that we've been seeing. So we do feel good about that. Just in general, I think from a route efficiency standpoint and the time that our route drivers automating a lot of their activities has been very beneficial.

In terms of the ERP. Yes, ERP will not specifically handle route optimization. The ABS system has put us in a better position with the serialization of our bar codes to be more aggressive on route optimization. And one additional piece of the puzzle, which we haven't talked that much about, but we're also in the midst of an implementation of telematics for our route trucks, including inward and outward facing cameras. And that data from the telematics, which will give us very good, obviously, mileage, but also route stop times will be part of the puzzle in terms of advancing additional route optimization.

I'm showing no further questions at this time. And I would like to hand the conference back over to Steve Sintros for any closing remarks.

I'd like to thank everyone for joining us today to review our results, and we look forward to speaking with everyone again in October when we expect to report our fourth quarter performance, as well as our outlook for fiscal '26. Thank you, and have a great day.

This concludes today's conference call. Thank you for participating, and you may now disconnect.